: The existing provisions of the Income Tax Act, 1961, have given birth to such myriad interpretations that its practitioners are often left wondering that perhaps only Bhagwad Gita could have more possible interpretations. Considering the sheer volume of litigation arising, not to mention the moolah involved as a result of differences in opinion of reading of complex clauses, simplification of tax laws was the crying need of the hour.
The finance minister, while introducing the draft Direct Tax Code (DTC) stressed the fact that DTC represents an attempt to simplify the tax laws of the country by removing ambiguities and thereby encouraging voluntary compliance by the taxpayers. One must appreciate the vision of the finance minister and his team, including the former finance minister, who had a significant say in shaping the DTC in the form it exists today.
However, as it often happens, the intentions and the vision of the legislators are sometimes not translated into black and white and a slight omission here and a misplaced word there can cause lot of discomfort to the tax payers, as many of the non-resident oil & gas service providers may find out in near future.
Under the existing provisions of Section 44BB of the Act, which has non-obstante clause overriding the other provisions of the Act, non-resident service providers to oil & gas industry enjoy a tax regime wherein 10% of the gross receipts are deemed to be their income and tax is levied at the rate of 42.23% on the income so determined, resulting into effective tax rate of 4.23%. Further the section provides that non-resident service providers at their option, can claim their actual taxable income to be lower than the deemed income computed as mentioned above, by furnishing duly audited accounts of the business to the tax authorities. Under the DTC, corresponding provisions of Section 44BB of the Act can be found in serial numbers 6 & 7 of the Rule 1 of Schedule Fourteen. It is interesting to note that this benefit shall not be available to service providers to the natural gas exploration companies. The language used in the serial numbers 6 & 7 of Rule 1 covers the assessees providing services in connection with prospecting/extraction/production of mineral oil.
Mineral oil and natural gas are separately defined in the DTC, unlike under the existing provisions wherein mineral oil is defined to include natural gas. Therefore, it appears that the...